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Unilever CEO Pursuing Strategic Shift With Peltz's Backing

By Reuters
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Unilever CEO Pursuing Strategic Shift With Peltz's Backing

Unilever CEO Hein Schumacher said billionaire activist and board member Nelson Peltz is "fully behind" a recently devised strategy to re-invigorate the company, even as some other investors remain sceptical after years of industry underperformance.

Schumacher told Reuters he wants Unilever, whose brands include Dove soap, Hellmann's condiments and Ben & Jerry's ice cream, to chart a "systematic" marketing strategy for its top brands.

The 52-year-old Dutchman also said he will not shy away from streamlining Unilever's 127,000-strong workforce.

His predecessor Alan Jope was criticised for allowing the group's brand portfolio to grow to around 400 SKUs, leaving management with too little time to focus on its best performers.

'Unnecessary Emphasis On Sustainability'

Investors had also criticised Unilever for not recovering margins in the wake of the pandemic and, in some cases, for placing an unnecessary emphasis on sustainability. Fundsmith's Terry Smith, for instance, criticised Unilever for being "obsessed" with sustainability at the expense of performance.

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When Unilever reported fourth quarter earnings last week, some investors and analysts criticised it for not regaining lost market share quickly enough and for letting margins slide.

Reports emerged in January 2022 that Peltz had been building a stake in Unilever through his Trian Partners investment fund, and he eventually took a seat on Unilever's board in July of that year. As of March 2023, the fund has a 1.45% stake in Unilever, LSEG data shows.

By September 2022, Jope's departure was announced, with Schumacher eventually becoming CEO in July the following year.

"Nelson came on the board (because) there was dissatisfaction with the performance," Schumacher said. "He saw an opportunity to buy at the share price where he thought there was potential."

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'Better Operating Discipline'

Schumacher said Peltz's views are "very much in line" with Unilever's growth strategy. This involves investing more in its top 30 brands that represent more than 70% of sales, supporting its innovation pipeline for the next few years and working towards a better operating discipline.

Peltz also likes Unilever's model of splitting its business lines by category instead of region, Schumacher said. This is similar to that which Trian is widely thought to have influenced at rival P&G and contrasts with Nestlé's geographically-focused structure.

Trian declined to comment.

Some investors have in recent years called for Unilever to go one step further and spin out its food business, which owns brands including Marmite spreads and Knorr stock cubes.

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When asked if he would consider spinning off the business, Schumacher said, "when you talk about bigger portfolio changes, obviously I'm looking at that, but the biggest opportunity for now is executing our growth action plan."

Unilever launched a €1.5 billion ($1.6 billion) share buyback last week after volumes increased for the first time in 10 quarters. Its nutrition and ice cream businesses were the only ones to report fourth quarter volume sales falls.

Schumacher worked with Peltz at HJ Heinz when the activist investor was orchestrating a merger with Kraft Foods. His appointment as Unilever CEO was warmly welcomed by Peltz, who has a record of shaking up consumer goods companies.

'Performance Culture Changes'

Schumacher's top priorities after his appointment included "performance culture changes". "That will mean that some part of the workforce will say 'not for me'," he said.

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Under Schumacher, Unilever has overhauled much of its leadership team, replacing executives including long-time finance chief Graeme Pitkethly and appointing others like Esi Eggleston Bracey, now head of growth and marketing officer.

Schumacher said he wants Eggleston Bracey to chart a very clear two-to-three-year roadmap on market development for Unilever's top brands.

"We don't have it today as systematic as I'd like it to be,” he added.

Some investors told Reuters in October that they were disappointed when Schumacher initially outlined long-awaited strategic plans, saying they would have preferred a more in-depth restructuring.

"I'm now in the mode of 'okay, I heard you and this is what we're doing about it'," he said. "History will judge whether I will be a good or bad CEO."

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